Former Bush Social Security adviser says ‘ship has sailed’ on personal retirement accounts

Keith Koffler Editor, White House Dossier
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The former Social Security adviser to President George W. Bush says that Bush’s signature proposal for personal Social Security retirement accounts may no longer be tenable and might have to be set aside when political leaders next get around to trying to fix the nation’s troubled retirement system.

In an interview with The Daily Caller, Charles Blahous, who helped Bush craft and promote the accounts, indicated that while the personal accounts were doable while Bush was still president, the current deficit makes the idea less practical today.

“We may now be in a place where that ship has sailed,” he said. “Taking on any advance funding of future liabilities may be a bridge further than we can go.”

The accounts, which would have included an option for investment in the stock market, lit a firestorm when Bush proposed to make them part of Social Security reform legislation in 2005. Democrats trained their fire on the accounts, accusing Bush of wanting to “privatize” Social Security. Many Republicans, including Blahous, believe Democrats used the accounts proposal as an excuse for refusing to negotiate with Bush on Social Security reform.

Bush’s proposals failed, and the death of his top domestic priority is widely credited with helping cripple his domestic agenda for the remainder of his term.

Blahous noted Democrats refused in 2005 to discuss a Senate proposal that did not include the accounts. “It wasn’t that they wanted to talk to talk about other ideas but not Social Security accounts,” he said. “It was a total shutdown.”

Bush’s plan, which Blahous still supports in theory, might not work today because initiating the accounts requires upfront funding from the federal government, which is more difficult to do when the top priority in Washington currently is cutting deficits.

As explained in Blahous’s new book, “Social Security: The Unfinished Work,” funding personal accounts with existing Social Security taxes requires the government to either take on more debt or divert spending from existing programs – the latter being the method preferred by Blahous — since Social Security taxes currently are not saved but instead spent by the government.

This is one of several facts about Social Security – explained in detail in Blahous’s book – that are commonly understood by Social Security experts but misperceived by many in the general public.

Social Security is a “pay-as-you-go” system, and was never intended to be anything else. People do not contribute funds while they work and then retrieve them at retirement. Instead, current workers fund current retirees.

According to Blahous, Bush’s effort to introduce the accounts was meant in part to make the system more equitable between generations by making current workers save for their own retirement.

This “pre-funding” would have forced the government to start paying some of its Social Security obligations today – by putting money into the accounts — rather than scrambling for the money down the road.

The scramble that lies ahead is the heart of Blahous’s book, which argues that  saving Social Security requires immediate action as Social Security taxes are spent instead of saved.

The government will one day have to pay back to Social Security the payroll taxes it is spending. The money will have to be found through massive tax increases or spending cuts, or a reduction in planned benefits.

But every year we wait to enact reform makes the “fix” more painful, Blahous argues. The argument — made by Democratic leaders during the 2005 debate — that Social Security is “solvent” for a few more decades is a red herring, in his view, since at that point massive, politically impossible benefit cuts or tax increases would be required.

Most policymakers agree that those in retirement or near it should be exempted from possible benefit cuts. So every year, another huge group of baby boomers  avoids benefit cuts and must be supported by existing workers.

In his book, Blahous offers several ideas for making the system solvent, including restraining the scheduled growth in benefits — with exceptions for lower income workers — and gradually raising the retirement age to 69 by 2072.

“Social Security: The Unfinished Work” also includes personal accounts as part of Social Security reform, but since writing the book in 2009, Blahous’s view of the practical feasibility of the accounts has changed with the burgeoning deficit.

Blahous is not completely certain about whether the decision by Bush to introduce personal accounts early on in the 2005 debate was the right one, but he tends to believe that the White House strategy was correct.

“I think about this all the time,” he said. “It’s not clear to me that if we’d done it in a different way,” we would have succeeded.

He sites what he believes was ingrained Democratic intransigence, and notes President Obama hasn’t been able to get his own party to agree on a path toward Social Security reform either.

“We got farther than anyone else,” Blahous said.

“We had been out there with the president’s proposal for personal accounts for four years,” he noted. “We felt we had to put some meat on the bones.”

Keith Koffler has covered the White House since 1997 and is currently the editor of the blog White House Dossier.